Click here for the PDF: The Quarterly Q1 2024

“I’m not the businessman. I don’t deal with the business at all. Not anymore. Occasionally every four years or five years, they tell me I’ve run out of money. I have to go and make some more.” – Mick Jagger, Rollings Stones Frontman


Lady Gaga recently celebrated her 38th birthday and as a fan, I marked the occasion by playing some of her biggest hits in my living room. When I thought about how successful Lady Gaga has become, I thought about the challenges she must have faced while dealing with people who might not have understood her earlier work. Though the link between Lady Gaga [and Bradley Cooper] and interest rates may not leap out at you, it will soon. For now, close your eyes and just try to remember what everyone was talking about last November. It was the peak of interest rates. “Hold” became our industry’s catch phrase for “likely future cut” with investors of all skill levels suddenly alive with the hope that perhaps with inflation under control interest rates would be coming down soon. The National Bank of Switzerland and the Banco Central de Mexico have already embarked on monetary easing campaigns, and I expect that many of the world’s other central banks are right now obsessing over what policy changes if any they should implement next. We suggest investors avoid being shallow when it comes to inflation.

Changes to monetary policy are a very big deal and cuts to interest rates boost economic growth through increased consumption and strength in housing prices. Both do zero harm to businesses and the economy. For these reasons, interest rates have an impact across multiple asset classes be it equities, which price in robust consumption and housing into higher corporate profits or bonds which set mortgage pricing and loan terms. Equity investors seem very confident that a nascent victory in inflation automatically means [multiple] deep cuts to short-term interest rates. Their enthusiasm is understandable if not potentially premature. When interest rates are low most people are incented to spend rather than save and that drives corporate profits1. Ned Davis Research found that, going back almost 90 years, the average return on stocks turned positive almost immediately following the first Fed rate cut, with 20% average annualized returns 12 months after the first rate cut and that is significantly more than the long-term average for the S&P 500 of 10.19%.